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District Court denies dismissal of RESPA "dual-tracking" suit
On November 1, the U.S. District Court for the Northern District of Ohio declined to grant summary judgment in favor of a mortgage servicer defendant in a Regulation X, RESPA, and Ohio Residential Mortgage Lending Act (RMLA) suit against the mortgage servicer and a law firm (collectively, “defendants”). The case concerned a loan modification that plaintiff had allegedly sought from defendants, for which the defendant mortgage servicer ultimately denied, and the defendant law firm initiated a foreclosure action. The defendant mortgage servicer challenged the count in the complaint alleging that the defendant mortgage servicer’s moving for summary judgment in the state foreclosure action violated Regulation X and RESPA’s prohibition on dual tracking. Dual tracking “occurs when a lender ‘actively pursues foreclosure while simultaneously considering the borrower for loss mitigation options.’” The defendant mortgage servicer argued that the prohibition on moving for summary judgment found in Regulation X did not apply because the plaintiff rejected the loan modification. The defendant mortgage servicer based this argument on the fact that it did not receive the plaintiff’s executed modification by a certain date. Because of this, the defendant mortgage servicer argued that it was permitted to move forward with a foreclosure judgment, and its decision to reverse the denial of the modification was at its discretion and not subject to the requirements of 12 C.F.R.1024.41(g).
The court found, however, that there was a genuine dispute as to whether the plaintiff returned the loan modification agreement by the designated date. The court continued, “[the defendant mortgage servicer’s] explanation regarding all three of the exceptions found at §41(g) subsections (1) through (3) each expressly depend upon the factual assertion that [the plaintiff] did not return a signed modification agreement and thereby rejected same. Inasmuch as there is evidence that [the plaintiff] did so, the court cannot conclude that [the defendant mortgage servicer] is entitled to judgment as a matter of law regarding the exceptions in §41(g) of Regulation X.” Among other things, the court also found that the defendant mortgage servicer “failed to act with reasonable care and diligence, in good faith, to safeguard and account for money tendered by [the plaintiff].” The court concluded by finding that the plaintiff sufficiently identified plausible damages as a result of a RESPA violation, further permitting her claims to stand.
District Court rules non-judicial foreclosure claims fail
On August 30, the U.S. District Court for the District of Oregon granted defendants’ motion for summary judgment in an action concerning an allegedly unlawful non-judicial foreclosure. Plaintiffs obtained a cash-out loan in 2005 and modified their mortgage terms. The plaintiffs stopped making payments after one of the defendant loan servicer’s agents allegedly informed them that “help was only available if they were in default,” and the defendant loan servicer threatened foreclosure. Following several years of bankruptcy proceedings and foreclosure mediation, plaintiffs sued to stop the foreclosure proceedings, claiming “that the deed of trust was void and that defendants committed fraud in attempting to foreclos[e] on the debt.” The initial non-judicial foreclosure proceedings were rescinded after the suit was dismissed with prejudice, and the defendant loan servicer was eventually allowed to proceed with a second non-judicial foreclosure under Oregon law. Plaintiffs sent a dispute letter demanding that the foreclosure be rescinded because the order in which several notices of default showing the amounts due and the amounts necessary to reinstate were sent did not comply with state law. After the notice was rescinded and a new notice of default was issued and recorded, plaintiffs sued again, seeking to enjoin the defendant trustee’s sale and filing several claims, including breach of contract and violations of the Oregon Unfair Trade Practices Act (OUTPA), RESPA, and FDCPA.
In granting summary judgment to the defendants on each of the claims, the court determined that the breach of contract claim fails because plaintiffs acknowledged that because “they have not substantially performed under the relevant contract,” they are precluded from seeking damages. The FDCPA claim against the defendant trustee also fails “because it is based on a perceived lack of authority under the relevant contract, but as explained in the breach of contract claim, that authority was not lacking.” Finally, the OUTPA and RESPA claims both fail “because there is no evidence that they incurred damages arising out of either claim”—a required element under both statutes, the court said. According to the court, plaintiffs failed “to support their drastic allegations with relevant evidence” and failed to “point to specific evidence supporting valid legal claims.”
Massachusetts reaches settlement with mortgage servicer over foreclosure practices
On August 17, the Massachusetts attorney general announced that a national mortgage servicer must pay $3.2 million to resolve allegations that its mortgage servicing, debt collection, and foreclosure practices were unfair and deceptive. According to the assurance of discontinuance, the servicer allegedly violated Massachusetts’ Act Preventing Unlawful and Unnecessary Foreclosures by not providing notice and opportunity for borrowers to apply and be reviewed for loan modifications. Among other things, the servicer also allegedly placed debt collection calls exceeding the number of calls permitted by state law, did not inform borrowers of their right to request verification of the amount of their debt, unfairly charged foreclosure-related fees prior to obtaining authority to foreclose, and failed to send required debt validation notices. While the servicer denied the allegations, it agreed to pay borrowers $2.7 million in the form of principal forgiveness on eligible loans as well as a $500,000 fine. The servicer also agreed to “make significant changes” to its business practices.
Louisiana appellate court affirms district court’s decision in SCRA case
On June 29, the Court of Appeal for the Second District of Louisiana affirmed a trial court’s grant of summary judgment in favor of a national bank in an SCRA case. According to the opinion, an active duty servicemember and his wife filed for bankruptcy after purchasing a mortgage on a property from a national bank (defendant). The defendant appeared in the bankruptcy proceedings and moved to abandon the property for purposes of eventual foreclosure. The plaintiffs moved out of the state and were granted a discharge under Chapter 7 bankruptcy laws. The defendant has not foreclosed on the property, asserting that the mortgage account remains subject to the protections of the federal SCRA. The plaintiffs filed suit, claiming ownership of the property due to the defendant’s failure to foreclose against them within five years of the abandonment of the property in the bankruptcy, asserting that their obligations under the mortgage are prescribed.
The appellate court agreed that the mortgage account is subject to the protections of the SCRA, which tolls any state prescriptive period for the duration of one’s active-duty military service. According to the opinion, despite “no evidence of repayment” to the bank of any of the underlying mortgage debt, the plaintiffs claimed ownership of the subject property because the bank failed to “foreclose against them within five years of the abandonment of the property in the bankruptcy.” Agreeing with the bank that the mortgage account still remained subject to the protections of the SCRA, the court determined that: (i) the servicemember and his wife “cannot point to any law or jurisprudence that would provide an exception to the mandatory tolling provision of the SCRA [50 U.S.C. § 3936] in these circumstances;” (ii) the couple “never executed a waiver of rights form”; (iii) the “five-year prescriptive period [under Louisiana law] has been tolled on the mortgage” for the entirety of the servicemember’s active-duty military service; and (iv) the bank’s time to foreclose on the subject property “has not prescribed, as the prescriptive period has not started to run.” The appellate court concluded that the couple’s “obligations on the mortgage have not been extinguished, and they are not the owners of the subject property.”
OCC releases report on mortgage performance
On June 27, the OCC released its quarterly mortgage metrics report, which presents performance data for the first quarter of 2022 for loans that reporting banks own or service for others as a fee-based business. The first-lien mortgages included in the OCC’s quarterly report comprise 22 percent of all residential mortgage debt outstanding in the U.S., or approximately 12.2 million loans totaling $2.6 trillion in principal balances. The report, among other things, found that the performance of first-lien mortgages in the federal banking system improved during the first quarter of 2022. According to the report, 96.9 percent of mortgages were current and performing at the end of the quarter. The percentage of seriously delinquent mortgages was 1.8 percent in the first quarter of 2022, compared to 2.3 percent in the prior quarter. However, foreclosures increased compared to the prior quarter and a year earlier as pandemic-related accommodations wound down, with servicers initiating 19,524 new foreclosures in the first quarter of 2022.
5th Circuit remands nonjudicial foreclosure suit back to state court
On June 16, the U.S. Court of Appeals for the Fifth Circuit held that a plaintiff borrower’s requested damages in a foreclosure lawsuit did not exceed the federal jurisdictional threshold amount of $75,000, and sent the case back to Texas state court. The plaintiff sued the financial institution in state court after it sought a nonjudicial foreclosure on his house, asserting violations of the Texas Debt Collection Act, breach of the common-law duty of cooperation, fraud, and negligent misrepresentation. The suit was removed to the U.S. District Court for the Northern District of Texas, with the defendant arguing that the suit automatically stayed its nonjudicial foreclosure sale, thus putting the value of the house ($427,662) as the amount in dispute, instead of the plaintiff’s requested relief of $74,500. The plaintiff moved to remand the case to state court on the premise “that the amount in controversy could not exceed the stipulated maximum of $74,500.” The district court denied the plaintiff’s motion, ruling that it “had to measure the amount in controversy ‘by the value of the object of the litigation,’” and not by what the plaintiff’s complaint says the damages were not to exceed.
In reversing and remanding the case to state court, the 5th Circuit concluded that, because the defendant did not show that the automatic stay brought the house’s value into controversy, it “failed to establish by a preponderance of the evidence that the amount in controversy exceeded $75,000.” The appellate court agreed with the plaintiff’s assertion that the house was simply collateral and “thus irrelevant to the amount in controversy,” writing that “[i]t is well-settled that neither the collateral effect of a suit nor the collateral effect of a judgment may count toward the amount in controversy.” The 5th Circuit also determined that the plaintiff expressly stipulated in both his original state-court petition and in a declaration “that he is seeking total damages not to exceed $74,500,” and that this stipulation is legally binding.
5th Circuit says loan contract containing grace period should be enforced
On June 16, the U.S. Court of Appeals for the Fifth Circuit reversed a district court’s summary judgment ruling in favor of a defendant lender, holding that a deadline accompanied by a grace period in a loan modification trial plan should be enforced. The plaintiff defaulted on his loan and sought a loan modification. The defendant provided the plaintiff an opportunity to participate in a trial period plan, which required three monthly payments due by January 1, February 1, and March 1, 2019. The trial period plan (TPP) also specified that a payment would be considered timely provided it was made within the month in which it was due. According to the opinion, even though the plaintiff “effectively accepted the terms of the TPP when he made the first trial period payment” within the grace period, the defendant informed him “he was ‘ineligible’ for the loan modification because he failed to comply with the terms of the TPP” and posted his property for foreclosure. The plaintiff sued the defendant for breach of contract, but the district court granted summary judgment to the defendant, declining to “give force to the grace period provisions” and concluding that the plaintiff did not comply with the payment deadlines.
On appeal, the 5th Circuit held that it will enforce a grace period included in a valid, binding contract. “If a lender sets a deadline for payment, but allows the borrower to make that payment anytime ‘in the month in which it is due,’ then the borrower may make that payment anytime in the month in which it is due,” the appellate court wrote. “That’s exactly what [the defendant] offered the borrower here—a deadline accompanied by a grace period. Yet [the defendant] nevertheless contends that we should ignore the grace period.” The 5th Circuit also rejected the defendant’s argument that the trial period plan was not a valid binding contract, pointing out that the text of the TPP made it clear that the defendant intended to be bound by its terms upon the plaintiff’s performance. Deadlines and grace periods co-exist by design, the appellate court explained, noting that “[g]race periods facilitate contractual relationships by making clear which deadlines are aspirational and which are mission-critical.”
District Court dismisses suit alleging improper inspection fees
On June 6, the U.S. District Court for the District of New Jersey granted a defendant bank’s motion to dismiss, ruling that the plaintiff’s inspection fee allegations are barred on collateral estoppel grounds. The plaintiff filed a class action suit claiming the defendant’s computer software orders property inspections after borrowers’ loans are in default and then charges borrowers for the improper inspection fees. According to the opinion, the defendant initiated foreclosure proceedings in 2012 against the plaintiff in state court after she missed payments. The parties litigated the matter for several years in state court, and in 2018, the plaintiff filed a motion for leave to add class action claims related to the defendant’s inspection fee collection system. The state court denied plaintiff’s motion, finding the proposed claims to be without merit and futile. Final judgment of foreclosure was granted to the bank. Similar proceedings involving the same class action counterclaims occurred after the defendant requested that the judgment be vacated to add an additional lien holder as a defendant. The defendant again applied for entry of final judgment, but withdrew this application allegedly in response to the Covid-19 pandemic. Ultimately the state court dismissed the foreclosure action without prejudice for lack of prosecution. The plaintiff filed an instant complaint in federal court.
The defendant argued that the plaintiff “should be collaterally estopped from bringing these claims because the New Jersey Superior Court ruled on the exact issues [plaintiff] raises here in the prior foreclosure action brought by [defendant] against [plaintiff] in state court, ultimately dismissing them with prejudice.” The plaintiff countered “that because the foreclosure action was dismissed without entry of judgment, collateral estoppel does not apply.” In agreeing with the defendant, the court stated that “the doctrine of collateral estoppel applies whenever an action is ‘sufficiently firm to be accorded conclusive effect,” adding that the state court’s orders in the foreclosure action are “sufficiently firm as to warrant conclusive effect.” According to the court, “[t]hese decisions—particularly the second dismissal with prejudice—were clearly intended to be the final adjudication of the precise issues that [plaintiff] is now attempting to relitigate in the instant action.”
HUD announces Kansas disaster relief
On May 26, HUD announced disaster assistance for certain areas in Kansas impacted by severe winter storms and straight-line winds from March 17 to March 22. The disaster assistance follows President Biden’s major disaster declarations on May 25. According to the announcement, HUD is providing immediate foreclosure relief, making various FHA mortgage insurance available to disaster victims, and providing information on housing providers as well as HUD-approved housing counseling agencies, among other measures. Specifically, HUD is providing an automatic 90-day moratorium on foreclosures of FHA-insured home mortgages for covered properties effective May 25. It is also making various FHA insurance options available to victims whose homes require repairs or were destroyed or severely damaged. HUD’s Section 203(h) program allows borrowers from participating FHA-approved lenders to obtain 100 percent financing, including closing costs, for homes in which “reconstruction or replacement is necessary.” HUD’s Section 203(k) loan program enables individuals to finance the repair of their existing homes or to include repair costs in the finance of a home purchase or a refinance of a home. HUD is also allowing administrative flexibilities to community planning and development grantees, as well as to public housing agencies and Tribes.
District Court grants in part/denies in part defendant’s motion in RESPA, FDCPA case
Recently, the U.S. District Court for the Western District of Tennessee granted in part and denied in part a defendant mortgage servicer’s motion for summary judgment concerning allegations that the defendant improperly foreclosed on plaintiff’s property. The plaintiff alleged that the defendant wrongfully accused her of failing to remedy her default and therefore violated RESPA and the FDCPA, among other things. Ultimately, the court denied defendant’s summary judgment request as to plaintiff’s RESPA claim because the defendant failed to exercise due diligence. But the court granted defendant’s request for summary judgment regarding plaintiff’s FDCPA claim because plaintiff presented no evidence that the defendant acted deceptively.
The plaintiff’s original loan—serviced by a previous servicer—was modified in 2016. But payments again were not made, so the previous servicer notified the plaintiff in December 2018 that it had accelerated the loan’s maturity date and referred the loan to foreclosure. The plaintiff, however, again applied for another modification in early 2019. After telling plaintiff her application was complete, the previous servicer then told the plaintiff, who claimed she inherited the property, that it needed additional documents to prove plaintiff’s successor-in-interest status. Ultimately, the previous servicer did not confirm the modification because the plaintiff did not confirm her successor-in-interest status.
The plaintiff again applied for a loan modification in March 2019, after the previous servicer transferred servicing rights to the defendant, and this modification was denied. She allegedly spoke with one of defendant’s representatives about the denial and indicated that she wished to reapply for a modification. However, the representative advised that she would have to reinstate the mortgage first before any loan modification. The defendant then sent a default letter to plaintiff’s property, which advised that the loan was still in default and needed payment.
The plaintiff submitted at least one additional request for mortgage assistance after the March 2019 modification application. The defendant acknowledged receipt of the request and detailed the documents it needed to process the request. The defendant then followed up in June 2019, stating again that it could not confirm that she was the successor-in-interest on the loan without documentation. A month later the defendant advised the plaintiff again that documents were still missing that were necessary to process her loan assistance request. The loan remained in default thereafter and the defendant foreclosed in August 2019.
In adopting the magistrate judge’s recommendation that the defendants’ motion for summary judgment be denied as to the RESPA claim, the district court noted that the defendant possibly should have sought documents, specifically the successor-in-interest documentation from the previous servicer, after the plaintiff submitted an incomplete loan modification application. The court stated that “there is a question of material fact whether [defendant] exercised reasonable diligence in failing to request the successor-in-interest documentation from [the previous servicer].” The court added that “there is a requirement of reasonable diligence, and there is no evidence showing that [defendant] met this standard. Failing to address the regulatory standard creates a question that cannot be resolved on the available information. Thus, there is at least one question of material fact here.”
Regarding plaintiff’s FDCPA claim, the court noted that “there is no evidence of deception in the foreclosure of loan payment process” and that “[p]laintiff has failed to provide any evidence that [defendant] acted dishonestly in requesting additional documentation to complete the loan modification.” The court therefore granted defendant’s summary judgment motion as to the FDCPA claim.